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SEC v. General Electric Co., Ionics, Inc., and Amersham plc

 
:
General Electric Co. - Ionics, Inc.
:
SEC Civil
:
July 27, 2010
:
SEC v. General Electric Co., Ionics, Inc., and Amersham plc
:
SEC v. General Electric Co., No. 1:10-cv-01258-RWR (D.D.C. 2010).
:
According to the SEC's complaint, four GE subsidiaries engaged in Oil for Food transactions involving kickbacks: Marquette, OEC-Medical, Nycomed, and Ionics Italba. Of the four subsidiaries only two, Marquette and OEC-Medical were GE subsidiaries during the relevant time period. GE acquired Ionics Italba’s parent company, Ionics, Inc., based in Massachusetts, in 2005, after the conduct at issue. The SEC had jurisdiction for bringing enforcement against Ionics, Inc. because previously it was a publicly-listed company in the United States.
:
Iraq
:
2000; 2001; 2002; 2003
:
Officials of Iraqi Ministry of Health and Iraqi Ministry of Oil
:
In April 1995, the U.N. adopted Security Council Resolution 986, which permitted the government of Iraq to sell oil and to use proceeds from those sales to purchase humanitarian supplies such as food for the Iraqi people (“U.N. Oil-for-Food Program”).  In an extensive scheme, the Iraqi government received illicit payments in the form of surcharges from oil purchasers and kickbacks, often termed “after sales service fees,” (“ASSF”) from humanitarian goods suppliers.  The kickback payments were masked by inflating the contract price, usually by 10% of the contract value.

The SEC’s Complaint contained general allegations of kickbacks paid to the Iraqi Ministry of Oil and Ministry of Health, but the SEC did not allege bribery to any individual government officials, nor did it allege a violation of the FCPA’s anti-bribery provisions. Instead, the SEC’s action was based on GE and its affiliates’ acquiescence to a scheme devised by the Iraqi ministries to defraud the UN Oil-For-Food Program by circumventing official procedures and providing false information to UN officials. The alleged conduct by at least two of GE's subsidiaries (including named defendants Amersham and Ionics) took place before they were acquired by GE. The SEC alleged 1) books-and-records violations, because this false information was allegedly documented on the relevant entities’ books and records; and 2) failure to implement a system of internal controls, because the entities allegedly lacked sufficient internal controls to detect the fraudulent actions.

According to the SEC's complaint, Ionics Italba, based in Italy, allegedly paid $795,000 in kickbacks and earned $2.3 million in profits on five contracts to sell water treatment equipment to the Iraqi Oil Ministry.  Four of the five contracts were negotiated with side letters documenting the Ionics Italba’s commitment to make kickback payments.  These letters were concealed from U.N. inspectors.  Ionics Italba artificially inflated the prices charged to the U.N. by 10% to cover the cost of the kickback payments. 
 
GE acquired Ionics Italba’s parent company, Ionics, Inc., based in Massachusetts, in 2005, after the conduct at issue.  The SEC had jurisdiction for bringing enforcement against Ionics, Inc. because it was a publicly-listed company in the United States.
 
:
Books and records (Issuer), Internal controls (Issuer)
:
Injunction/Cease and desist
:
As a result of Ionics' conduct and that of three other company subsidiaries, GE was ordered to disgorge $18,397,949 plus pay pre-judgment interest of $4,080,665 and a civil penalty of $1,000,000, totaling $23,478,614.
:
Not stated.
:
0
:
Issuer
:
U.S.
:
Contract Procurement/Retention, Customs Clearance
:
2,300,000
:
Cash
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Sales Agent/Consultant
:
795,000
:
Iraq
:

:
Yes